Flexible workspace experiencing ‘dramatic growth’ across Asia Pacific

Flexible workspace experiencing ‘dramatic growth’ across Asia Pacific

28 June 2019

According to a new report by CBRE, flexible space providers including coworking and serviced office operators have undertaken dramatic growth across Asia Pacific in recent years, fueled by growing demand from a broadening base of end-users including startups, small and-medium sized enterprises, and large corporates.

CBRE data show that since 2016, flexible space operators have increased their Asia Pacific footprint by more than 300% following aggressive expansion in existing cities and new markets.

As of March 2019, their total office footprint in the region stood at 54 million sq. ft., accounting for more than 3% of overall office supply. China and India host the largest volume of flexible space, with Shanghai (9 million sq. ft.) and Bangalore (6 million sq. ft.) the largest city markets within each country.

With the sector occupying just 2% of total Grade A office stock in Asia Pacific, there is still considerable room for growth. However, in recent months, CBRE has observed many providers adopting a more measured pace of expansion. This shift in sentiment comes amid the onset of the late business cycle.

As often happens after a period of exponential growth, many flexible space operators have already built critical mass for their service offering. At the same time, it is becoming somewhat more challenging to achieve high occupancy amid intense competition between a mounting number of providers.

Certain operators, especially Chinese-based groups, are also experiencing a funding squeeze. CBRE believes these factors will drive the implementation of more sophisticated and nuanced strategies designed to improve occupancy and ensure operational profitability, especially on a per centre basis.

These strategies will include customising enterprise solutions; forming creative partnerships with landlords; targeting specific niche segments; and adopting a more prudent approach towards site selection.

Large companies in traditional office occupying sectors such as finance and professional services are displaying growing demand for flexible office space such as coworking, serviced offices and turnkey space operated by mainstream landlords and third-party providers. This trend is being driven by advances in technology, new lease accounting rules, a more mobile workforce and unpredictable economic growth, which have transformed the occupier approach to real estate decision-making and led to a strong focus on portfolio flexibility

While more flexible space operators are becoming receptive to forming partnerships with commercial property landlords, the coming years may see them more actively seek such opportunities as they look to go asset-light, slash the large upfront CAPEX required to open new centres, and significantly reduce rental overheads.

CBRE believes there are considerable opportunities for flexible space operators to provide offices and services catering to specific niches, functions and industries.

Examples include Campfire’s facility in Wong Chuk Hang, Hong Kong, which specifically serves creative industries including fashion, design and media, by providing photography studios, sound recording rooms and even a catwalk. Other industry-focused co-working spaces have been designed to host certain units or functions from large corporates.

The transition from expansion to efficiency and focus on improving occupancy in existing centres is also prompting flexible space operators to adopt a more judicious approach towards the selection of new locations and to lease negotiations for new space.